Settling claims through cheques is vital to a modern economy. Litigation will be resorted to only when a lender holds a dud cheque.

The reported proposal to have Lok Adalat-type dispute resolution mechanisms to deal with cases involving dishonour of cheques before launching any criminal prosecution makes little sense. Currently, ‘bouncing’ of any cheque drawn by a person on a bank for want of sufficient money in that account is a criminal offence under the Negotiable Instruments Act. The law neither considers the circumstances under which the dishonour of cheque takes place nor requires any proof of fraudulent intention at the time of writing it out: The very fact of its dishonour is a crime that can invite up to two years’ imprisonment or fine amounting to twice the amount of the cheque, or both. What is being proposed now — apparently at the Law Ministry’s initiative — is to have an alternative dispute settlement body for such cases. Only in the event of a settlement not being reached would any need for initiating prosecution in the courts arise.

The ostensible logic for the proposal, which will necessitate an amendment to the existing Section 138, is that Indian courts are simply not able to handle the huge pendency of dishonoured cheque cases, many of which are for amounts below Rs 10 lakh. If these cases can be settled through Lok Adalats — their awards are binding in the event of the parties reaching a compromise — it would help considerably reduce the burden on criminal court system. But this argument misses the central idea behind Section 138: It was to enhance the credibility of the cheque as an instrument representing an unconditional promise on the part of its drawer to pay a fixed sum of money at a future date or on demand. The provisions making cheque bouncing a criminal offence, through an amendment in 1988, were intended to curtail the issue of cheques in a casual manner or with dishonest intent (that needn’t even be proved). Since cheque-based transactions are vital to the functioning of a modern economy — to grease the wheels of commerce, so to speak — nobody can seriously object to these provisions. Moreover, it is fair to say that litigation happens only where a lender has lost all hopes of recovering monies covered under a negotiable instrument.

Watering them down, by enabling Section 138 prosecution only if alternative dispute mechanisms fail, would weaken what is certainly a powerful deterrent against writing out cheques without any intention of honouring them. True, there are individuals and even big companies whose cheques bounce with impunity. But that only makes the case for expeditious punishment – indeed, making an example out of them — even stronger. Nor can the fact of our courts being clogged with cases of cheque dishonouring be reason enough for seeking compromise-based solutions. Having fast-track magisterial courts to deal with cases is fine, so long as the criminal nature of the offence undergoes no dilution.

(This article was published on December 10, 2012)
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